We ASX share market investors are always prepping for the 'next stock market crash'. As any investor worth their salt knows, market corrections and crashes are an unfortunate and inevitable side-effect of having an ASX share portfolio. There's always a correction or crash coming. The thing we don't know is when.
As such, it is prudent to be prepared for the next stock market correction. That's both mentally and with our actual ASX share portfolios.
I'd like to think my own portfolio is ready for the next inevitable stock market correction. Here's why.
Preparing financially and mentally
For full disclosure, I actually don't believe in 'preparing' a portfolio for a stock market correction. Basic stock market investing history tells us that corrections, while inevitable, are also relatively rare. The markets tend to go up far more often, and for far longer, than they correct or crash.
As such, I think it's logical to build a portfolio that will do well when markets are rising, and not one that might fall less than the market when there is a correction happening.
Say the share market rises for four years before undergoing a correction in the fifth year. If you spend those first four years preparing for the crash, you are potentially sitting out of the markets at exactly the time that makes investing worthwhile in the first place.
Because of this, I believe that preparing mentally for a market correction is a lot more important than preparing one's portfolio. The worst decisions investors make usually come when they are panicking in the midst of a crash.
I feel comfortable that my share portfolio is ready for a crash today for two reasons.
How I'm preparing my ASX share portfolio for the next stock market correction
Firstly, I believe my portfolio is made up of quality companies that will not only survive a stock market correction but will thrive and come out even better on the other side. I focus a lot of my investments in the consumer staples sector. Some of my shares in this area include Endeavour Group Ltd (ASX: EDV), Procter & Gamble, Coca-Cola Co, and the iShares Global Consumer Staples ETF (ASX: IXI).
These companies (and the exchange-traded fund (ETF)) tend to be resistant to all forms of economic maladies, including recessions and inflation. So I'm not too worried about how they will fare if a future recession sparks a market correction.
Secondly, I'm confident in the share prices I bought almost all of my investments at. The biggest protection you can have in your portfolio is buying companies at "prices that make sense", as the legendary Warren Buffett would say.
Sure, you can't always get the best price for your buys. But as long as they are reasonable, and you are paying for a quality company, this alone can help prepare your portfolio for the next crash.
I do still have some of my portfolio in cash and in other defensive assets such as gold that might help cushion my portfolio from a market downturn. However, the vast, vast majority is still invested in shares. But I'm still not worried about the next stock market correction. And I hope you feel the same about your own portfolio.
